Wash Sales All Year Long

Forum|Forum|3 years ago
September 11, 2022
2 replies
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I have been trading quite often this year. I plan to do even more trading next year. I have exclusively trade options on SPY, QQQ, and DIA. I buy calls and puts everyday (sometimes multiple times a day i.e. pattern day trader) and later on the same day sell them, of course sometimes for a profit and sometimes for a loss. I end every day at market close with no open positions.

I realize I am flagging wash sales all year long. I also realize that those losses are changing my cost basis and are more or less deferring those losses. Please correct me if I am wrong about those assumptions. I do plan to stop trading in the month of November just to try and get credit for losses for the year. The part that worries me is that in the wash sale rule it states "30 days prior", so even if I stop trading on any specific day in November, and even though I don't buy any more through the year I still bought some in the days leading up to my final trading day of the year in November that would definitely be considered a purchase within 30 days. And I am worried that this might cause problems for me (such as all wash sales being disallowed, or otherwise just not able to realize these losses at year end come time for taxes). I am not interested in changing my accounting method at this time, and I am not interested in changing my status to Tax Trader Status.

So my questions is, if I day trade options, intraday all year long, flagging wash sales everyday until November the 23rd (note: I was trading everyday until that point, hence my concern with the 30 days prior) and then just close everything at the end of the day and don't trade anymore until January the 10th, what will be the tax ramifications of that? Will I still be able to realize or otherwise get credit for my losses throughout the year?

Not A Product Question

Best answer by Anonymous_

The wash sale rule has an impact on losses and, basically, having open positions in substantially similar securities.

If, for example, you close all of your positions in November of 2022 (i.e., leave no open positions) and do not trade (do not open any new positions) until January 10th of 2023, you should have no wash sales.

Anonymous_Answer

Employee

The wash sale rule has an impact on losses and, basically, having open positions in substantially similar securities.

joshua2063Author

Thank you for verifying and confirming that. You saved me a lot of time and money.

fanfare

Employee

In order to have "stopped trading", you must have closed out all your open positions in securities involving the wash sale rule.

this includes options that would expire in December or might be exercised, and triggering purchases which are carrying your loss.

Do this in early November or earlier and you will get to deduct your losses.

@joshua2063

Mike9241

perhaps it's more correct to say you still have the wash sales but because you have disposed of the securities causing these before year-end the suspended loss will be allowed.

if you qualify as a trader, you could make the mark-to-mark election in which case there are no wash sales in the trading account and you could also maintain an investment account that would still be subject to the wash sale rules but only for trades in that account.

who qualifies as a trader and does it make economic sense to make the election is something that if you are interested in should be discussed with a tax pro who can go over your entire tax situation. it makes sense for some not for others.

Anonymous_

Employee

@Mike9241 wrote:

perhaps it's more correct to say you still have the wash sales but because you have disposed of the securities causing these before year-end the suspended loss will be allowed.

It is actually more important, regardless of the phraseology, that the "wash sales" do not appear as such on the 1099-B (as they should not if properly reported).

Mike9241

sure they will. I have used different brokers and if I sold a security at a loss and then repurchased it during the wash sale period, that sale will be reported on the 1099-B as a wash sale. if I then sold the replacement shares before year-end and do not repurchase them during the wash sale period, the deferred loss will now be allowed but it will be reflected in the second sale. at least that's the way my brokers have reported them. there is a good reason. the holding period of the original shares in the wash sale tack on to the replacement shares so what could have been a short-term transaction could end up as a long-term transaction.